• Rationale likely to be UK growth and diversification: We believe Brit is considering an acquisition of Chaucer to help build out
its UK operations, in particular in the motor market whilst also diversifying its portfolio. We estimate a combination of the two
books would see an increase in the proportion of short-tail lines of business from 35% to 55%.

• Acquisition price likely to be above 1x TNAV: We believe that any eventual offer for Chaucer is likely to be above £260.5m,
which we estimate to be its current tangible NAV, before taking into account accrued profits for the year. Any offer below
tangible book value is unlikely to appeal to Chaucer shareholders given continued interest from other parties, the strong
pricing environment in 2009, and improved investment returns. Media reports prior to Friday’s announcement had mentioned
a possible bid price in the region of £280m, which would be equivalent to 1.07x TNAV.

• Valuation: We are reiterating our Neutral rating on Brit given the uncertainty surrounding any potential offer, with our target
price unchanged at 280p, suggesting 45% upside potential. The shares are currently trading on 0.8x P/TNAV and 9.9x our
2009E earnings which we have reduced by 39% to reflected gains on FX on non-monetary items in 2008 reversing in 2009

Randall said it was important to stress that a deal had not been done and something “could still go wrong”.

But he said

Public anger erupted when it emerged that ‘Fred The Shred’ was being paid £700,000 a year as part of his £16.6m pension agreement.

That anger turned into isolated acts of vandalism after Sir Fred insisted the contract be honoured.

Sir Fred is widely seen as the architect of RBS’s disastrous strategy of corporate acquisitions, which led to the bank’s downfall.

Under the threat of legal action from RBS, Sir Fred has offered to reduce what he receives by £200,000 per annum.

This would reduce the value of his pension pot by around £4m.

However, he has already taken out a lump sum of £2.7m in cash from his pension pot.

And even after reducing his pension by £200,000 or so, he would still receive a pension of around £350,000 or so.

I understand that Royal Bank would be minded to agree this deal.

Ministers may not wish to agree the deal, because Sir Fred would still be receiving more than would have been the case had he been dismissed rather than leaving on agreed terms.

• 1. The key underlying driver which made the rally of the past 3 months
possible, the stabilisation in credit, remains on track, in our view. HG
and HY spreads have not widened over the past few days in either the US
or Europe. As of 16th June close, compared to a week ago, 9th June, US
HG and HY are actually tighter by 11bp and 3bp respectively, and by
9bp and 3bp in Europe. Credit is not the catalyst for this weakness.

• 2. The correction is in a sense self-correcting as the risk free rates are
moving back down, with 10year US yields lower by almost 30bp since
the latest high, and 2year by almost 20bp. Therefore, one of the key
recent market concerns, the back-up in risk free rates, is being addressed.
It would surely be much more worrying if equities were starting to
weaken against a backdrop of a sell-off in government bonds, driven by a
failed auction, for example.

NH: While the group has no liquidity or covenant issues going forward, the management are taking a prudent approach to prepare for the refinancing of the group’s revolving credit facility (“RCF”) in
July 2010 and the maturing of the £325m bond in 2012. We expect current steps to improve the group’s prospects of securing an investment grade credit rating ahead of refinancing the bond

First Quantum looks the best fit — The most obvious ‘fit’ we see in terms of
desirability of the metal and loose institutional ownership is First Quantum. Its
geographic location, while perhaps challenging for some of the larger miners, may
not be seen as a negative by the Chinese as Africa is the one big relatively
untapped copper province and could be key to China’s long-term economic future.

Geared to recovery — Commodity mix provides significant leverage to improving
macro conditions. Of the UK majors, XTA has the greatest exposure to base metals.
Base metals will take the lead into an economic recovery, providing XTA with
superior earnings momentum. The company’s cost base is also improving in nickel
and zinc providing additional margin expansion potential.

Culture clash — Debt levels and political sensitivities in South Africa make a hostile
deal unlikely. A merger-type deal would limit the level of cost savings. Anglo’s
reluctance to do a deal and the stark difference in corporate cultures make a tie-up
a possibility rather than a probability, in our view.